High Court rejects standard terms’ limitations of liability as unreasonable

Insights - 25/06/2015

In a recent ruling, the High Court has decided that various limitations of liability in standard term contracts were, in principle, unreasonable under the Unfair Contract Terms Act 1977 (UCTA).  In a worst case scenario, the liability of the party seeking to rely on an unreasonable limitation or exclusion of liability will be unlimited.

One of the clauses deemed unreasonable was a clause offering the replacement of goods or compensation limited to invoice value of the goods in the event of certain kinds of defects and defaults on the condition that an inspection and notification procedure was observed by the buyer promptly on delivery. This clause failed the reasonableness test because it purported to exclude all liability in the event of a failure by the buyer to comply with its requirements. The judge considered that this was too draconian a consequence to flow from such a default.

Another clause excluding all liability for the usual categories of indirect or consequential loss was held to be unreasonable and ineffective in blocking a claim for loss of business and the cost of diverted staff time. The implication of the judge’s remarks seems to be that any attempt to exclude indirect or consequential loss risk being held unreasonable in any standard terms sale of goods situation where it was in the contemplation of the parties that any direct loss to the buyer would be greater than the mere cost of replacing the goods.

The ruling was made in a case where a claim for the invoice price of goods sold and delivered was met with a counter-claim that the defendant had suffered considerably greater loss from the claimant supplying the defendant with other goods which were allegedly defective.

As usual the case turned very much on its facts but you may like to consider reviewing your limitation of liability clauses in the light of the judge’s statements.

If you supply goods or services, and would like us to review limitation of liability clauses in your standard terms and conditions, contact our commercial team on 01737 854 500 or find out more here

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